Last week the White House announced that government spending cuts due to take effect March 1 would greatly impact the average American and the U.S. economy. On Monday, it brought forward that the Small Business Administration's guaranteed loan programs are on the government’s $85 billion chopping block. Specifically, cuts to the SBA lending program would amount to $540 million this year, which could translate to potentially 1,100 small businesses being denied a SBA backed loan.
According to several new sources: The SBA currently is authorized to back $16 billion in loans this year through its flagship 7(a) loan program, a popular source of long-term financing for small businesses. Another $6 billion is authorized for 504 loans, which are used for fixed assets, primarily real estate. Both programs are on pace to come close to hitting those targets this year, meaning a $540 million reduction in the SBA's lending capacity could have real consequences.
Given that traditional bank lending to small businesses still has not returned to pre-financial crisis levels—and perhaps never will—many small businesses are relying heavily on SBA-backed loans. For many businesses, both start-up and established, there are, thankfully, a number of alternative financing options available. Invoice financing, purchase order financing, merchant cash advances, factoring, crowd funding, and peer-to-peer lending are a few of the small business financing options out there.
Some of these alternative financing approaches, like The Receivables Exchange do not require contracts, all-asset liens, or personal guarantees and are much more flexible and less risky than both traditional bank and SBA loans. While cuts to the SBA lending program may put some small businesses at a disadvantage, thanks to alternative lenders, there are still plenty of options for companies to get access to the capital they need.